But if you have anything to share, I would certainly happy to discuss. Learning is important in life..

1. So who owns the house? Bank, homebuyer or both? If the bank owns a part then should they not share in the cost of utilities, insurance, property taxes etc.? Yet these costs are all borne out by the homebuyer. So why is the homebuyer paying “rent”? According to law these should be borne out by owners only in proportion to their ownership.

2. If every year, more of the title goes to the homebuyer, then should not the Islamic bank pay the City of Toronto a Land Transfer Tax every year because every year the title is changing in composition?

3. If a fire destroys the house after first year who collects the insurance money? (Again goes back to the first question: who is the owner).

4. So what transaction is this? Is it a lease, a loan, a purchase? I thought uncertainties were NOT allowed in an Islamic transaction?

5. Why does the Islamic bank re-evaluate the market price of the house every year to determine the rent? According to Ontario Law, rent can only grow by a fixed percentage every year. Yet suspiciously most Islamic financier’s reevaluation of the market price of the house to determine the “rent” is surprisingly close to Bank of Canada’s financing rates or the international LIBOR rate.

I put some more questions about Islamic financing here: http://mezba.blogspot.com/2010/10/questions-about-islamic-financing.html but the above questions are relevant to this post.

Human beings have got to stop and listen for Shaitan’s whisper in their ears (in this case, “Who cares if it’s forbidden? Who’s going to notice the hidden interest-gathering?” I think we all know Who is going to notice. Nothing gets past Him.) before they do this sort of thing. He often slips in His whispers at the same time as God is speaking plainly to us through His writings, so that if we do not think first, we may put into practice everything we heard in that session of study, including the unwanted “footnotes.”

Here are the 2 cents from someone who has actually worked in a So called No Interest house financing . Heard of LARIBA ? well, here’s the concept ( or at least was initially the concept ). Company and you purchase the house together. Each owns the % of house based on who puts what. Now , the company then find outs the rental in the neighborhood ( 3 quotes ) and assign you that rent. Over the period of time you pay that rent. A FIXED amount. Every month a portion of which goes towards the rent and portion of which goes towards buying the % of house, and over the period of time the portion of rent you are paying towards buying the % of house goes up ( sounds familiar ?). If the rent in the neighborhood is such that company would end up losing money , then no deal. My understanding of Islam says that there is no interest in islam. Either you give Qard Hasana , i.e. give someone loan with literally no expectation of getting it back or invest together ( i.e. sharing profit AND loss ) . Now in above model if you want to sell the house ( once you have more than 50% ownership ) , and house is selling at loss , both the company and yourself should share the loss , correct ? here comes the twist. In company’s many years history there wasn’t a loss recorded. Though in paper they show that they tried to find out the rentals in the neighborhood but there isn’t a real search for that ( at least I never saw one ) . Wait a sec, then how do they come up with the amount of rent ( read monthly payment s ) well , every morning the VP sends an email telling you about the rate from which you calculate that payment. Where does he get that % ? Fannie Mae or Freddie Mac, depending on who is financing the loan.
Management criticizes other so-called islamically financed companies using different argument e.g Jews owners or Fatwa shopping or comments of such sort and you might have analyzed their model and respective implementation yourself.
I am not sure about all this. Since we are supposed to go where there is no doubt or clarity is higher , as long as I can live without buying a house or investing in funds, I would rather remain on the safe side for risk of involving in riba is pretty scary.

And surely Allah Knows Best .

Thanks Ibn Hajr for elucidating what should be the “Islamic banking”. There is no prohibition to making money in Islam but one has to share the risk. By “slicing and dicing” Islamic banks absolve themselves from sharing the risk with the borrower. The practiced Murabaha transactions are very much akin to “temporary marriage” or “Halal Adultery” as in both cases the intention is quite different than what it should be. One can’t marry temporarily i-e marrying for a period and then divorce and similarly one can’t pre-arrange a mark up transaction and then call it a Murabaha.

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